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Smart folders work great when you already have a structure to your data (e.g. Mail, with its contents, headers, addresses, etc.) If you need to spend further time adding metadata, you will end up losing content unless you're a meticulous tagger.

Smart folders are also useful if you have only a primary category for a piece of data, but (semi-) related data has similar naming schemes. An example I've used before would be my Journler database, where I have lists of "Places to go (near)", "Places to go (distant)", "Places to eat", etc. I use smart folders to group them together as follows:

* Places to... (Smart folder, category name starts with "Places to")
** Go (Smart folder, category contains "go"
*** Distant (Smart folder, category contains "distant")
** Eat...

What's great about Journler's implementation is it cascades the smart folder logic down the hierarchy. If I moved (or copied) "Distant" from under "Go" to under "Eat", I would suddenly have a list of places to eat that aren't near me.

It works wonderfully (and more easily than reading about it might let on).